----

----

| DELAWARE                             | 77-0313235               |
|--------------------------------------|--------------------------|
| (State      or other jurisdiction of | (I.R.S.      Employer    |
| incorporation      or organization)  | Identification      No.) |

| 550      S. Hope Street, Suite 2850           |            |
|-----------------------------------------------|-----------------|
| Los      Angeles, CA                          | 90071           |
| (Address      of principal executive offices) | (Zip      Code) |

| Common      Stock, par value $0.01 per share | The      NASDAQ Stock Market LLC |
|----------------------------------------------|----------------------------------|
| (Title      of Class)                        | (Exchange)                       |

----

----

| Part I        |                                                                                                                                   |   |
|---------------|----------------------------------------------------------------------------------------------------------------------------------------|--------|
|          |                                                                                                                                   |   |
| Item      1.  | Business                                                                                                                               | 1      |
|          |                                                                                                                                   |   |
| Item      1A. | Risk Factors                                                                                                                           | 7      |
|          |                                                                                                                                   |   |
| Item      1B. | Unresolved Staff Comments                                                                                                              | 9      |
|          |                                                                                                                                   |   |
| Item      2.  | Properties                                                                                                                             | 9      |
|          |                                                                                                                                   |   |
| Item      3.  | Legal Proceedings                                                                                                                      | 11     |
|          |                                                                                                                                   |   |
| Item      4.  | Submission of Matters to a Vote of Security      Holders                                                                               | 12     |
|          |                                                                                                                                   |   |
| Part II       |                                                                                                                                   |   |
|          |                                                                                                                                   |   |
| Item      5.  | Market for Registrant’s Common Equity,  Related      Stockholder Matters and Issuer Purchase of Equity      Securities | 13     |
|          |                                                                                                                                   |   |
| Item      6.  | Selected Financial Data                                                                                                                | 16     |
|          |                                                                                                                                   |   |
| Item      7.  | Management’s      Discussion and Analysis of Financial Condition and Results      of Operations                                  | 18     |
|          |                                                                                                                                   |   |
| Item      8.  | Financial Statements and Supplementary    Data                                                                                         | 28     |
|          |                                                                                                                                   |   |
| Item      9.  | Changes      in and Disagreements with Accountants on Accounting and Financial      Disclosure                                         | 28     |
|          |                                                                                                                                   |   |
| Item      9A. | Controls and Procedures                                                                                                                | 28     |
|          |                                                                                                                                   |   |
| Item      9B. | Other Information                                                                                                                      | 29     |
|          |                                                                                                                                   |   |
| Part III      |                                                                                                                                   |   |
|          |                                                                                                                                   |   |
| Item      10. | Directors, Executive Officers and Corporate      Governance                                                                            | 30     |
|          |                                                                                                                                   |   |
| Item      11. | Executive Compensation                                                                                                                 | 30     |
|          |                                                                                                                                   |   |
| Item      12. | Security      Ownership of Certain Beneficial Owners and Management and      Related Stockholder Matters                               | 30     |
|          |                                                                                                                                   |   |
| Item      13. | Certain      Relationships and Related Transactions, and Director Independence                                                         | 30     |
|          |                                                                                                                                   |   |
| Item      14. | Principal Accounting Fees and Services                                                                                                 | 30     |
|          |                                                                                                                                   |   |
| Part IV       |                                                                                                                                   |   |
|          |                                                                                                                                   |   |
| Item      15. | Exhibits, Financial Statement Schedules                                                                                                | 31     |

----

ITEM 1.  Business

| ·   | Spreading      basins, which are shallow ponds that percolate water from the ground      surface down to the water table; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------|

| ·   | High      yield wells designed to efficiently extract stored Colorado River water      and indigenous groundwater from beneath the Cadiz Project      area; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | A      42-mile conveyance pipeline to connect the spreading basins and well field      to the Colorado River Aqueduct near the Iron Mountain pumping plant;      and |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | A      pumping plant to pump water through the conveyance pipeline from the      Colorado River Aqueduct near the Iron Mountain pumping plant to the Cadiz      Project spreading basins. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

ITEM 1A.  Risk Factors

ITEM 1B.  Unresolved Staff Comments

ITEM 2.  Properties

ITEM 3.  Legal Proceedings

ITEM 4.  Submission of Matters to a Vote of SecurityHolders

ITEM5.  Market for Registrant's Common Equity, Related Stockholder Mattersand IssuerPurchase of Equity Securities

|               |   | High             |                                                  |   | Low              |   |
|--------------------|--------|------------------|-------------------------------------------------------|--------|------------------|--------|
| Quarter      Ended |   | Sales      Price |                                                  |   | Sales      Price |   |
|               |   |             |                                                  |   |             |   |
| 2007:              |   |             |                                                  |   |             |   |
| March      31      |   | $                | 26.98                                                 |   |             | $      | 22.01 |   |
| June      30       |   | $                | 26.13                                                 |   |             | $      | 20.95 |   |
| September      30  |   | $                | 23.00                                                 |   |             | $      | 16.22 |   |
| December      31   |   | $                | 21.00                                                 |   |             | $      | 17.02 |   |
|               |   |             |                                                  |   |             |   |   |   |
| 2008:              |   |             |                                                  |   |             |   |   |   |
| March      31      |   | $                | 20.73                                                 |   |             | $      | 13.81 |   |
| June      30       |   | $                |         19.57 |   |             | $      | 15.15 |   |
| September      30  |   | $                | 20.39                                                 |   |             | $      | 14.66 |   |
| December      31   |   | $                | 18.77                                                 |   |             | $      | 8.45 |   |

ITEM 6.  Selected Financial Data

|                                                                    |   | Year      Ended December 31, |     |
|-------------------------------------------------------------------------|--------|------------------------------|----------|
|                                                                    |   | 2008                         |     |   | 2007 |   |   | 2006 |   |   | 2005 |   |   | 2004 |   |
| Statement      of Operations Data:                                      |   |                         |     |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      revenues                                                     |   | $                            | 992      |   |   | $ | 426 |   |   | $ | 614 |   |   | $ | 1,197 |   |   | $ | 47 |   |
| Net      loss                                                           |   |                         | (15,909  | ) |   |   | (13,633 | ) |   |   | (13,825 | ) |   |   | (23,025 | ) |   |   | (16,037 | ) |
|                                                                    |   |                         | -        |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
|                                                                    |   |                         | -        |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Net      loss applicable to common stock                                |   | $                            | (15,909  | ) |   | $ | (13,633 | ) |   | $ | (13,825 | ) |   | $ | (23,025 | ) |   | $ | (16,037 | ) |
| Per      share:                                                         |   |                         |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      loss (basic and diluted)                                       |   | $                            | (1.32    | ) |   | $ | (1.15 | ) |   | $ | (1.21 | ) |   | $ | (2.14 | ) |   | $ | (2.32 | ) |
| Weighted-average      common shares outstanding                         |   |                         | 12,014   |   |   |   | 11,845 |   |   |   | 11,381 |   |   |   | 10,756 |   |   |   | 6,911 |   |
|                                                                    |   |                         |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                    |   | Year      Ended December 31, |     |
|                                                                    |   | 2008                         |     |   | 2007 |   |   | 2006 |   |   | 2005 |   |   | 2004 |   |
| Balance      Sheet Data:                                                |   |                         |     |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                    |   |                         |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      assets                                                       |   | $                            | 47,412   |   |   | $ | 49,572 |   |   | $ | 50,326 |   |   | $ | 46,046 |   |   | $ | 51,071 |   |
| Long-term      debt                                                     |   | $                            | 33,975   |   |   | $ | 29,652 |   |   | $ | 25,881 |   |   | $ | 25,883 |   |   | $ | 25,000 |   |
|  Preferred      stock, common stock and additional paid-in capital |   | $                            | 263,658  |   |   | $ | 254,102 |   |   | $ | 245,322 |   |   | $ | 226,852 |   |   | $ | 209,718 |   |
| Accumulated      deficit                                                |   | $                            | (251,252 | ) |   | $ | (235,343 | ) |   | $ | (221,710 | ) |   | $ | (207,885 | ) |   | $ | (184,860 | ) |
| Stockholders’      equity                                         |   | $                            | 12,406   |   |   | $ | 18,759 |   |   | $ | 23,612 |   |   | $ | 18,967 |   |   | $ | 24,858 |   |

ITEM 7.  Management’s Discussion and Analysis of FinancialCondition and Results of Operations

|                                     |   | Year      EndedDecember      31, |   |
|------------------------------------------|--------|----------------------------------|--------|
|                                     |   | 2008                             |   |   | 2007 |   |
|                                     |   |                             |   |   |   |   |
| Interest      on outstanding debt        |   | $                                | 2,033  |   |   | $ | 1,929 |   |
| Amortization      of debt discount       |   |                             | 2,299  |   |   |   | 1,852 |   |
| Amortization      of deferred loan costs |   |                             | 77     |   |   |   | 62 |   |
| Interest      income                     |   |                             | (107   | ) |   |   | (605 | ) |
|                                     |   |                             |   |   |   |   |   |   |
|                                     |   | $                                | 4,302  |   |   | $ | 3,238 |   |

|                                     |   | Year      EndedDecember      31, |   |
|------------------------------------------|--------|----------------------------------|--------|
|                                     |   | 2007                             |   |   | 2006 |   |
|                                     |   |                             |   |   |   |   |
| Interest      on outstanding debt        |   | $                                | 1,929  |   |   | $ | 1,987 |   |
| Amortization      of debt discount       |   |                             | 1,852  |   |   |   | 783 |   |
| Amortization      of deferred loan costs |   |                             | 62     |   |   |   | 40 |   |
| Interest      income                     |   |                             | (605   | ) |   |   | (376 | ) |
|                                     |   |                             |   |   |   |   |   |   |
|                                     |   | $                                | 3,238  |   |   | $ | 2,434 |   |

| ·   | a      final maturity date of June 29,2011; |
|--------------------|---------------------------------------------|

| ·   | a      zero coupon structure, which requires no cash interest payments prior to      the final maturity date; and |
|--------------------|-------------------------------------------------------------------------------------------------------------------|

| ·   | a      5% interest rate for the first 3 years, with a 6% interest rate      thereafter. |
|--------------------|-----------------------------------------------------------------------------------------|

|                            |   | Payments      Due by Period |   |
|---------------------------------|--------|-----------------------------|--------|
| Contractual      Obligations    |   | Total                       |   |   | Less      than 1 year |   |   | 1-3      years |   |   | 3-5      years |   |   | After      5 years |   |
|                            |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Long      term debt obligations |   | $                           | 41,289 |   |   | $ | 9 |   |   | $ | 41,280 |   |   | $ | - |   |   | $ | - |   |
|                            |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      payable           |   |                        | 6,470  |   |   |   | - |   |   |   | 6,470 |   |   |   | - |   |   |   | - |   |
|                            |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      leases           |   |                        | 1,069  |   |   |   | 365 |   |   |   | 566 |   |   |   | 138 |   |   |   | - |   |
|                            |   | $                           | 48,828 |   |   | $ | 374 |   |   | $ | 48,316 |   |   | $ | 138 |   |   | $ | - |   |

ITEM 8.  Fnancial Statements and SupplementaryData

ITEM 9.  Changes in and Disagreements with Accountants onAccounting and Financial Disclosures

ITEM 9A.  Controls and Procedures

ITEM 9B.  Other Information

ITEM 10.  Directors, Executive Officers and CorporateGovernance

ITEM 15.  Exhibits, Financial StatementSchedules

|   | 1. | Financial      Statement.  See Index to Consolidated Financial      Statements. |
|--------|----|--------------------------------------------------------------------------------------|

|   | 2. | Financial      Statement Schedule.  See Index to Consolidated Financial      Statements. |
|--------|----|----------------------------------------------------------------------------------------------------|

|   | 3. | Exhibits. |
|--------|----|-----------|

|   | 3.1 | Cadiz      Certificate of Incorporation, as amended(1) |
|--------|-----|--------------------------------------------------------|

|   | 3.2 | Amendment      to Cadiz Certificate of Incorporation dated November 8, 1996(2) |
|--------|-----|--------------------------------------------------------------------------------|

|   | 3.3 | Amendment      to Cadiz Certificate of Incorporation dated September 1, 1998(3) |
|--------|-----|---------------------------------------------------------------------------------|

|   | 3.4 | Amendment      to Cadiz Certificate of Incorporation dated December 15, 2003(4) |
|--------|-----|---------------------------------------------------------------------------------|

|   | 3.5 | Certificate      of Elimination of Series D Preferred Stock, Series E-1 Preferred Stock and      Series E-2 Preferred Stock of Cadiz Inc. dated December 15, 2003(4) |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3.6 | Certificate      of Elimination of Series A Junior Participating Preferred Stock of Cadiz      Inc., dated March 25, 2004(4) |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------|

|   | 3.7 | Amended      and Restated Certificate of Designations of Series F Preferred Stock of      Cadiz Inc.(5) |
|--------|-----|---------------------------------------------------------------------------------------------------------|

|   | 3.8 | Cadiz      Bylaws, as amended      (6) |
|--------|-----|----------------------------------------|

|   | 3.9 | Second      Amended and Restated Certificate of Designations of Series F Preferred      Stock of Cadiz Inc. dated June 30, 2006, as corrected by Certificate of      Correction dated March 14, 2007(15) |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3.10 | Certificate      of Elimination of Series F Preferred Stock of Cadiz Inc. (as filed August      3, 2007)(17) |
|--------|------|--------------------------------------------------------------------------------------------------------------|

|   | 4.1 | Form      of Subscription Agreement used for issuance of Units in November 2008(7) |
|--------|-----|------------------------------------------------------------------------------------|

|   | 4.2 | Form      of Subscription Agreement used for issuance of Units in December 2008(7) |
|--------|-----|------------------------------------------------------------------------------------|

|   | 4.3 | Form      of Warrant Agreement (Callable Warrant)(7) |
|--------|-----|------------------------------------------------------|

|   | 4.4 | Form      of Warrant Agreement ( Non-Callable)(7) |
|--------|-----|---------------------------------------------------|

|   | 10.1 | Agreement      Regarding Employment Between Cadiz Inc. and Keith Brackpool dated July 5,      2003(8) |
|--------|------|-------------------------------------------------------------------------------------------------------|

|   | 10.2 | Limited      Liability Company Agreement of Cadiz Real Estate LLC dated December 11,      2003(4) |
|--------|------|---------------------------------------------------------------------------------------------------|

|   | 10.3 | Amendment      No. 1, dated October 29, 2004, to Limited Liability Company Agreement of      Cadiz Real Estate LLC(9) |
|--------|------|-----------------------------------------------------------------------------------------------------------------------|

|   | 10.4 | Consulting      Agreement dated August 1, 2002 by and between Richard Stoddard and Cadiz      Inc., and Extension of Consulting Agreement dated January 1, 2004 by and      between Richard Stoddard and Cadiz Inc.(9) |
|--------|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.5 | Employment      Agreement dated September 12, 2005 between O'Donnell Iselin II and Cadiz      Inc.(10) |
|--------|------|--------------------------------------------------------------------------------------------------------|

|   | 10.6 | Settlement      Agreement dated as of August 11, 2005 by and between Cadiz Inc., on the      one hand, and Sun World International, Inc., Sun Desert, Inc., Coachella      Growers and Sun World/Rayo, on the other hand(11) |
|--------|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.7 | $36,375,000      Credit Agreement among Cadiz Inc. and Cadiz Real Estate LLC, as Borrowers,      the Several Lenders from time to time parties thereto, and Peloton      Partners LLP, as Administrative Agent, dated as of June 26, 2006(12) |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.8 | Amendment      No. 1 dated September 29, 2006 to the $36,375,000 Credit Agreement among      Cadiz Inc. and Cadiz Real Estate LLC, as Borrowers, the Several Lenders      from time to time parties thereto and Peloton Partners LLP, as      Administrative Agent, dated as of June 26, 2006(13) |
|--------|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.9 | Outside      Director Compensation Plan(14) |
|--------|------|---------------------------------------------|

|   | 10.10 | Resolutions      adopted by the Cadiz Inc. Board of Directors on March 13, 2007, increasing      the annual salary paid to Keith Brackpool and the monthly consulting fees      paid to Richard E. Stoddard(15) |
|--------|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.11 | 2007      Management Equity Incentive Plan(16) |
|--------|-------|------------------------------------------------|

|   | 10.12 | Amendment      No. 2 dated October 1, 2007 to Reorganization Plan and Agreement for      Purchase and Sale of Assets dated as of February 18, 1998 among Cadiz Inc.      and Mark A. Liggett in his capacity as successor in interest to      Exploration Research Associates, Incorporated., a California corporation      (“ERA”)      and in his individual capacity as former sole shareholder of ERA and as      the successor in interest to ERA(18) |
|--------|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.13 | Amendment      dated October 1, 2007 to Employment Agreement between O’Donnell Iselin II      and Cadiz Inc.(18) |
|--------|-------|------------------------------------------------------------------------------------------------------------------------|

|   | 10.14 | Consulting      Agreement dated January 1, 2008 by and between Timothy J. Shaheen and      Cadiz Inc.(18) |
|--------|-------|-----------------------------------------------------------------------------------------------------------|

|   | 10.15      Longitudinal      Lease Agreement dated September 17, 2008 between Arizona & California      Railroad Company and Cadiz Real Estate, LLC(19) |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 21.1 | Subsidiaries      of the Registrant |
|--------|------|-------------------------------------|

|   | 23.1 | Consent      of Independent Registered Public AccountingFirm |
|--------|------|--------------------------------------------------------------|

|   | 31.1 | Certification      of Keith Brackpool, Chairman and Chief Executive Officer of Cadiz Inc.      pursuant to Section 302 of the Sarbanes-Oxley Act of  2002 |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 31.2 | Certification      of Timothy J. Shaheen, Chief Financial Officer and Secretary of Cadiz Inc.      pursuant to Section 302 of the Sarbanes-Oxley Act of  2002 |
|--------|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 32.1 | Certification      of Keith Brackpool, Chairman and Chief Executive Officer of Cadiz Inc.      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of      the Sarbanes-Oxley Act of 2002 |
|--------|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 32.2 | Certification      of Timothy J. Shaheen, Chief Financial Officer and Secretary of Cadiz Inc.      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of      the Sarbanes-Oxley Act of 2002 |
|--------|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (1) | Previously      filed as an Exhibit to our Registration Statement of Form S-1      (Registration No. 33-75642) declared effective May 16, 1994 filed on      February 23, 1994 |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Previously      filed as an Exhibit to our Report on Form 10-Q for the quarter ended      September 30, 1996 filed on November 14,1996 |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | Previously      filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarter      ended September 30, 1998 filed on November 13,  1998 |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (4) | Previously      filed as an Exhibit to our Annual Report on Form 10-K for the year ended      December 31, 2003 filed on November 2,2004 |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------|

|   | (5) | Previously      filed as an Exhibit to our Current Report on Form 8-K dated November 30,      2004 filed on December 2, 2004 |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------|

|   | (6) | Previously      filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarter      ended June 30, 1999 filed on August 13, 1999                              |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (7) | Previously      filed as an exhibit to Amendment No.1 to our Registration Statement on      Form S-3 (Registration No. 333-156502) filed on January 27,      2009  |

|   | (8) | Previously      filed as an Exhibit to our Report on Form 10-Q for the quarter ended      September 30, 2003 filed on November 2,2004 |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------|

|   |  (9) | Previously      filed as an Exhibit to our Annual Report on Form 10-K for the fiscal year      ended December 31, 2004 filed on March 31,2005 |
|--------|-----------|-----------------------------------------------------------------------------------------------------------------------------------------------|

|   | (10) | Previously      filed as an Exhibit to our Current Report on Form 8-K dated October 3,      2005 filed on October 3, 2005 |
|--------|------|---------------------------------------------------------------------------------------------------------------------------|

|   | (11)       | Previously      filed as an Exhibit to our Report on Form 10-Q for the quarter ended      September 30, 2005 filed on November 14, 2005                 |
|--------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (12)  | Previously      filed as an Exhibit to our registration statement on Form S-3      (Registration No. 333-126117) filed on July 28, 2006  |
|   | (13)       | Previously      filed as an Exhibit to our current report on Fomr 8-K dated      October 4, 2006 and filed October 4, 2006          |
|   | (14)       | Previously      filed as appendix B to our definitive proxy dated October 10, 2006      and filed October 10, 206                             |

|   | (15) | Previously      filed as an Exhibit to our Annual Report on Form 10-K for the fiscal year      ended December 31, 2006 filed on March 16, 2007 |
|--------|------|------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (16) | Previously      filed as appendix A to our definitive proxy dated April 27, 2007 and filed      April 27, 2007                            |

|   | (17)       | Previously      filed as an Exhibit to our Report on Form 10-Q for the quarter ended June      30, 2007 filed on August 6, 2007                                     |
|--------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (18)       | Previously      filed as an Exhibit to our Annual Report on Form 10-K for      the fiscal year ended December 31, 2007 filed on March 16,      2008  |
|   | (19)  | Previously      filed as an Exhibit to our Report on Form 10-Q for the quarter ended      September 30, 2008 on November 10,  2008                   |

----

|                                                                                                   | Page   |
|--------------------------------------------------------------------------------------------------------|--------|
|                                                                                                   |   |
| Report of Independent Registered Public Accounting      Firm                                           | 36     |
|                                                                                                   |   |
| Consolidated Statements of Operations for the three      years ended December 31, 2008                 | 38     |
|                                                                                                   |   |
| Consolidated Balance Sheets as of December 31, 2008 and      2007                                      | 39     |
|                                                                                                   |   |
| Consolidated Statements of Cash Flows for the three      years ended December 31, 2008                 | 40     |
|                                                                                                   |   |
| Consolidated Statements of Stockholders’ Equity      for the three years ended December 31, 2008 | 41     |
|                                                                                                   |   |
| Notes to the Consolidated Financial      Statements                                                    | 42     |
|                                                                                                   |   |
| Financial Statement Schedule                                                                           | 67     |
|                                                                                                   |   |

Report of Independent Registered Public AccountingFirm

----

Consolidated Statements of Operations

|                                                       |   | Year      Ended December 31, |                                            |
|------------------------------------------------------------|--------|------------------------------|-------------------------------------------------|
| (In      thousands, except per share data)                 |   | 2008                         |                                            |   | 2007 |   |   | 2006 |   |
|                                                       |   |                         |                                            |   |   |   |   |   |   |
| Total      revenues                                        |   | $                            | 992                                             |   |   | $ | 426 |   |   | $ | 614 |   |
|                                                       |   |                         |                                            |   |   |   |   |   |   |   |   |   |
| Costs      and expenses:                                   |   |                         |                                            |   |   |   |   |   |   |   |   |   |
| Cost      of sales (exclusive of depreciation shown below) |   |                         |        1,098 |   |   |   | 566 |   |   |   | 721 |   |
| General      and administrative                            |   |                         | 11,154                                          |   |   |   | 9,988 |   |   |   | 7,710 |   |
| Depreciation      and amortization                         |   |                         | 341                                             |   |   |   | 261 |   |   |   | 154 |   |
|                                                       |   |                         |                                            |   |   |   |   |   |   |   |   |   |
| Total      costs and expenses                              |   |                         | 12,593                                          |   |   |   | 10,815 |   |   |   | 8,585 |   |
|                                                       |   |                         |                                            |   |   |   |   |   |   |   |   |   |
| Operating      loss                                        |   |                         | (11,601                                         | ) |   |   |  (10,389 | ) |   |   | (7,971 | ) |
|                                                       |   |                         |                                            |   |   |   |   |   |   |   |   |   |
| Interest      expense, net                                 |   |                         | (4,302                                          | ) |   |   | (3,238 | ) |   |   | (2,434 | ) |
| Loss      on extinguishment of debt and debt refinancing   |   |                         | -                                               |   |   |   | - |   |   |   |     (868 | ) |
| Change      in fair value of derivative liability          |   |                         | -                                               |   |   |   | - |   |   |   |      (2,919 | ) |
| Other      income (expense)                                |   |                         | -                                               |   |   |   | (2 | ) |   |   | 373 |   |
|                                                       |   |                         |                                            |   |   |   |   |   |   |   |   |   |
| Other      income (expense), net                           |   |                         |     (4,302                  | ) |   |   | (3,240 | ) |   |   | (5,848 | ) |
|                                                       |   |                         |                                            |   |   |   |   |   |   |   |   |   |
| Net      loss before income taxes                          |   |                         | (15,903                                         | ) |   |   | (13,629 | ) |   |   | (13,819 | ) |
|                                                       |   |                         |                                            |   |   |   |   |   |   |   |   |   |
| Income      tax expense                                    |   |                         | 6                                               |   |   |   | 4 |   |   |   | 6 |   |
|                                                       |   |                         |                                            |   |   |   |   |   |   |   |   |   |
| Net      loss                                              |   |                         | (15,909                                         | ) |   |   | (13,633 | ) |   |   | (13,825 | ) |
|                                                       |   |                         |                                            |   |   |   |   |   |   |   |   |   |
| Net      loss applicable to common stock                   |   | $                            | (15,909                                         | ) |   | $ | (13,633 | ) |   | $ | (13,825 | ) |
|                                                       |   |                         |                                            |   |   |   |   |   |   |   |   |   |
| Basic      and diluted net loss per share                  |   | $                            | (1.32                                           | ) |   | $ | (1.15 | ) |   | $ | (1.21 | ) |
|                                                       |   |                         |                                            |   |   |   |   |   |   |   |   |   |
| Weighted-average      shares outstanding                   |   |                         | 12,014                                          |   |   |   | 11,845 |   |   |   | 11,381 |   |
|                                                       |   |                         |                                            |   |   |   |   |   |   |   |   |   |

----

Consolidated Balance Sheets

|                                                                                                                                                                            |   | December      31, |                                       |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|--------------------------------------------|
| ($      in thousands)                                                                                                                                                           |   | 2008              |                                       |   | 2007 |   |
|                                                                                                                                                                            |   |              |                                       |   |   |   |
| ASSETS                                                                                                                                                                          |   |              |                                       |   |   |   |
|                                                                                                                                                                            |   |              |                                       |   |   |   |
| Current      assets:                                                                                                                                                            |   |              |                                       |   |   |   |
| Cash      and cash equivalents                                                                                                                                                  |   | $                 | 2,014                                      |   |   | $ | 8,921 |   |
| Short-term      investments                                                                                                                                                     |   |              | 4,500                                      |   |   |   | - |   |
| Accounts      Receivable                                                                                                                                                        |   |              | 66                                         |   |   |   | 20 |   |
| Prepaid      expenses and other                                                                                                                                                 |   |              | 507                                        |   |   |   | 216 |   |
|                                                                                                                                                                            |   |              |                                       |   |   |   |   |   |
| Total      current assets                                                                                                                                                       |   |              | 7,087                                      |   |   |   | 9,157 |   |
|                                                                                                                                                                            |   |              |                                       |   |   |   |   |   |
|                                                                                                                                                                            |   |              |                                       |   |   |   |   |   |
| Property,      plant, equipment and water programs, net                                                                                                                         |   |              | 35,784                                     |   |   |   | 36,032 |   |
| Goodwill                                                                                                                                                                        |   |              | 3,813                                      |   |   |   | 3,813 |   |
| Other      assets                                                                                                                                                               |   |              | 728                                        |   |   |   | 570 |   |
|                                                                                                                                                                            |   |              |                                       |   |   |   |   |   |
| Total      assets                                                                                                                                                               |   | $                 | 47,412                                     |   |   | $ | 49,572 |   |
|                                                                                                                                                                            |   |              |                                       |   |   |   |   |   |
| LIABILITIES      AND STOCKHOLDERS' EQUITY                                                                                                                                       |   |              |                                       |   |   |   |   |   |
|                                                                                                                                                                            |   |              |                                       |   |   |   |   |   |
| Current      liabilities:                                                                                                                                                       |   |              |                                       |   |   |   |   |   |
| Accounts      payable                                                                                                                                                           |   | $                 | 247                                        |   |   | $ | 408 |   |
| Accrued      liabilities                                                                                                                                                        |   |              | 775                                        |   |   |   | 744 |   |
| Current      portion of long term debt                                                                                                                                          |   |              | 9                                          |   |   |   | 9 |   |
|                                                                                                                                                                            |   |              |                                       |   |   |   |   |   |
| Total      current liabilities                                                                                                                                                  |   |              | 1,031                                      |   |   |   | 1,161 |   |
|                                                                                                                                                                            |   |              |                                       |   |   |   |   |   |
| Long-term      debt                                                                                                                                                             |   |              | 33,975                                     |   |   |   | 29,652 |   |
|                                                                                                                                                                            |   |              |                                       |   |   |   |   |   |
|       Total      liabilities                                                                                                                      |   |              | 35,006                                     |   |   |   | 30,813 |   |
|                                                                                                                                                                            |   |              |                                       |   |   |   |   |   |
| Commitments      and contingencies (Note 12)                                                                                                                                    |   |              |                                       |   |   |   |   |   |
|                                                                                                                                                                            |   |              |                                       |   |   |   |   |   |
| Stockholders'      equity:                                                                                                                                                      |   |              |                                       |   |   |   |   |   |
|                                                                                                                                                                            |   |              | -                                          |   |   |   | - |   |
| Common      stock - $0.01 par value; 70,000,000 shares authorized; shares issued and      outstanding: 12,453,210 at December 31, 2008 and 11,903,611 at December      31, 2007 |   |              | 125                                        |   |   |   | 119 |   |
|                                                                                                                                                                            |   |              |                                       |   |   |   |   |   |
| Additional      paid-in capital                                                                                                                                                 |   |              | 263,533                                    |   |   |   | 253,983 |   |
| Accumulated      deficit                                                                                                                                                        |   |              | (251,252                                   | ) |   |   | (235,343 | ) |
| Total      stockholders' equity                                                                                                                                                 |   |              | 12,406                                     |   |   |   | 18,759 |   |
|                                                                                                                                                                            |   |              |                                       |   |   |   |   |   |
| Total      liabilities and stockholders' equity                                                                                                                                 |   | $                 |       47,412 |   |   | $ | 49,572 |   |

----

Consolidated Statements of Cash Flows

|                                                           |   | Year      Ended December 31, |    |
|----------------------------------------------------------------|--------|------------------------------|---------|
| ($ in      thousands)                                          |   | 2008                         |    |   | 2007 |   |   | 2006 |   |
|                                                           |   |                         |    |   |   |   |   |   |   |
| Cash      flows from operating activities:                     |   |                         |    |   |   |   |   |   |   |
| Net      loss                                                  |   | $                            | (15,909 | ) |   | $ | (13,633 | ) |   | $ | (13,825 | ) |
| Adjustments      to reconcile net loss to net cash             |   |                         |    |   |   |   |   |   |   |   |   |   |
| used      for operating activities:                            |   |                         |    |   |   |   |   |   |   |   |   |   |
| Depreciation                                                   |   |                         | 341     |   |   |   | 261 |   |   |   | 154 |   |
| Amortization      of deferred loan costs                       |   |                         | 77      |   |   |   | 62 |   |   |   | 40 |   |
| Amortization      of debt discount                             |   |                         | 2,299   |   |   |   | 1,852 |   |   |   | 783 |   |
| Loss      on extinguishment of debt and debt refinancing       |   |                         | -       |   |   |   | - |   |   |   | 868 |   |
| Interest      added to loan principal                          |   |                         | 2,033   |   |   |   | 1,928 |   |   |   |      1,463 |   |
| Net      (gain) loss on disposal of assets                |   |                         |    |   |   |   | 2 |   |   |   | (21 | ) |
| Change      in value of derivative liability                   |   |                         | -       |   |   |   | - |   |   |   | 2,919 |   |
| Compensation      charge for stock awards and share options    |   |                         | 4,358   |   |   |   | 3,609 |   |   |   | 2,260 |   |
| Issuance      of stock for services                            |   |                         | 135     |   |   |   | - |   |   |   | - |   |
| Changes      in operating assets and liabilities:              |   |                         |    |   |   |   |   |   |   |   |   |   |
| Decrease      (increase) in accounts receivable                |   |                         | (46     | ) |   |   | 281 |   |   |   | (131 | ) |
| Decrease      (increase) in prepaid borrowing expense          |   |                         | -       |   |   |   | - |   |   |   | 523 |   |
| Decrease      (increase) in prepaid expenses and other         |   |                         | (291    | ) |   |   | 27 |   |   |   |  (209 | ) |
| (Decrease)      increase in accounts payable                   |   |                         | (161    | ) |   |   |    (36 | ) |   |   | 75 |   |
| (Decrease)      increase in accrued liabilities                |   |                         | 31      |   |   |   | 364 |   |   |   | (175 | ) |
|                                                           |   |                         |    |   |   |   |   |   |   |   |   |   |
| Net      cash used for operating activities                    |   |                         | (7,133  | ) |   |   | (5,283 | ) |   |   | (5,276 | ) |
|                                                           |   |                         |    |   |   |   |   |   |   |   |   |   |
| Cash      flows from investing activities:                     |   |                         |    |   |   |   |   |   |   |   |   |   |
| Investment      in short-term deposits                         |   |                         | (4,500  | ) |   |   |       (8,819 | ) |   |   | - |   |
| Additions      to property, plant and equipment                |   |                         | (93     | ) |   |   | (1,105 | ) |   |   | (22 | ) |
| Proceeds      from sale of marketable securities               |   |                         |    |   |   |   | 8,819 |   |   |   | - |   |
| Proceeds      from asset disposition                           |   |                         | -       |   |   |   | - |   |   |   | 22 |   |
| Other      assets                                              |   |                         | (235    | ) |   |   | (250 | ) |   |   | - |   |
|                                                           |   |                         |    |   |   |   |   |   |   |   |   |   |
| Net      cash used for investing activities                    |   |                         | (4,828  | ) |   |   | (1,355 | ) |   |   | - |   |
|                                                           |   |                         |    |   |   |   |   |   |   |   |   |   |
| Cash      flows from financing activities:                     |   |                         |    |   |   |   |   |   |   |   |   |   |
| Proceeds      from exercise of stock options                   |   |                         | -       |   |   |   | 139 |   |   |   | - |   |
| Net      proceeds from issuance of common stock                |   |                         | 5,063   |   |   |   | 5,032 |   |   |   | 1,050 |   |
| Proceeds      from issuance of long-term debt                  |   |                         | -       |   |   |   | - |   |   |   | 36,375 |   |
| Deferred      loan costs                                       |   |                         | -       |   |   |   | - |   |   |   |        (408 | ) |
| Principal      payments on long-term debt                      |   |                         | (9      | ) |   |   | (9 | ) |   |   | (26,646 | ) |
|                                                           |   |                         |    |   |   |   |   |   |   |   |   |   |
| Net      cash provided by financing activities                 |   |                         | 5,054   |   |   |   | 5,162 |   |   |   | 10,371 |   |
|                                                           |   |                         |    |   |   |   |   |   |   |   |   |   |
| Net      increase (decrease) in cash and cash equivalents |   |                         | (6,907  | ) |   |   | (1,476 | ) |   |   | 5,095 |   |
|                                                           |   |                         |    |   |   |   |   |   |   |   |   |   |
| Cash      and cash equivalents, beginning of period            |   |                         | 8,921   |   |   |   | 10,397 |   |   |   | 5,302 |   |
|                                                           |   |                         |    |   |   |   |   |   |   |   |   |   |
| Cash      and cash equivalents, end of period                  |   | $                            | 2,014   |   |   | $ | 8,921 |   |   | $ | 10,397 |   |
|                                                           |   |                         |    |   |   |   |   |   |   |   |   |   |

----

Consolidated 

| For      the Years Ended December 31, 2008, 2007, and 2006                                            |   |
|-------------------------------------------------------------------------------------------------------|--------|
| ($ in      thousands)                                                                                 |   |
|                                                                                                  |   |   |   |   | Additional |   |   |   |   |   | Total |   |
|                                                                                                  |   | Preferred      Stock |   |   | Common      Stock |   |   | Paid-in |   |   | Accumulated |   |   | Stockholders’ |   |
|                                                                                                  |   | Shares |   |   | Amount |   |   | Shares |   |   | Amount |   |   | Capital |   |   | Deficit |   |   | Equity |   |
|                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance      as of December 31, 2005                                                                  |   |   | 1,000 |   |   |  $ | - |   |   |   | 11,330,463 |   |   | $  | 114 |   |   | $  | 226,738 |   |   | $  | (207,885 | ) |   | $  | 18,967 |   |
|                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Convertible      term loan conversion option                                                          |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   |             15,160 |   |   |   | - |   |   |   | 15,160 |   |
| Stock      compensation expense and issuance of management incentive and outside      director shares |   |   | - |   |   |   | - |   |   |   | 136,195 |   |   |   | 1 |   |   |   | 2,259 |   |   |   | - |   |   |   | 2,260 |   |
| Common      stock issued due to warrant exercise                                                      |   |   | - |   |   |   | - |   |   |   | 70,000 |   |   |   | 1 |   |   |   | 1,049 |   |   |   | - |   |   |   | 1,050 |   |
| Fractional      shares retired                                                                        |   |   | - |   |   |   | - |   |   |   | (61 | ) |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Net      loss                                                                                         |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (13,825 | ) |   |   | (13,825 | ) |
| Balance      as of December 31, 2006                                                                  |   |   | 1,000 |   |   | $ | - |   |   |   | 11,536,597 |   |   | $ | 116 |   |   | $ | 245,206 |   |   | $ | (221,710 | ) |   | $ | 23,612 |   |
|                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance      of shares pursuant to warrant exercise                                                  |   |   | - |   |   |   | - |   |   |   | 335,440 |   |   |   | 3 |   |   |   | 5,029 |   |   |   | - |   |   |   | 5,032 |   |
| Issuance      of shares pursuant to stock awards and option exercise                                  |   |   | - |   |   |   | - |   |   |   | 14,285 |   |   |   | - |   |   |   | 139 |   |   |   | - |   |   |   | 139 |   |
| Issuance      of shares upon conversion of Series F Preferred Stock                                   |   |   | (1,000 | ) |   |   | - |   |   |   | 17,289 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Stock      compensation expense                                                                       |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 3,609 |   |   |   | - |   |   |   | 3,609 |   |
| Net      Loss                                                                                         |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   | (13,633 | ) |   | (13,633 | ) |
| Balance      as of December 31, 2007                                                                  |   |   | - |   |   | $ | - |   |   |   | 11,903,611 |   |   | $ | 119 |   |   | $ | 253,983 |   |   | $ | (235,343 | ) |   | $ | 18,759 |   |
|                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance      of shares pursuant to stock awards                                                      |   |   | - |   |   |   | - |   |   |   | 54,599 |   |   |   | 1 |   |   |   | - |   |   |   | - |   |   |   | 1 |   |
| Issuance      of shares pursuant to Private Placement                                                 |   |   | - |   |   |   | - |   |   |   | 495,000 |   |   |   | 5 |   |   |   | 5,192 |   |   |   | - |   |   |   | 5,197 |   |
| Stock      compensation expense                                                                       |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 4,358 |   |   |   | - |   |   |   | 4,358 |   |
| Net      Loss                                                                                         |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (15,909 | ) |   |   | (15,909 | ) |
| Balance      as of December 31, 2008                                                                  |   |   | - |   |   | $ | - |   |   |   | 12,453,210 |   |   | $ | 125 |   |   | $ | 263,533 |   |   | $ | (251,252 | ) |   | $ | 12,406 |   |

----

Notes To The Consolidated FinancialStatements

|                              |   | Amounts             |   |
|-----------------------------------|--------|---------------------|--------|
|                              |   | (in      thousands) |   |
|                              |   |                |   |
| Balance      at December 31, 2006 |   | $                   | 3,813  |   |
| Adjustments                       |   |                | -      |   |
|                              |   |                |   |   |
| Balance      at December 31, 2007 |   |                | 3,813  |   |
| Adjustments                       |   |                | -      |   |
|                              |   |                |   |   |
| Balance      at December 31, 2008 |   | $                   | 3,813  |   |

| •  Level 1      | Quoted      prices in active markets for identical assets or liabilities.                                                                                                                                                                                                                                                                                        |
|----------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  Level 2 | Inputs      other than Level 1 that are observable, either directly or indirectly,      such as quoted prices for similar assets or liabilities; quoted prices in      markets that are not active; or other inputs that are observable or can be      corroborated by observable market data for substantially the full term of      the assets or liabilities. |
| ●       Level 3 | Unobservable      inputs that are supported by little or no market activity and that are      significant to the fair value of the assets or  liabilities.                                                                                                                                                                                                  |

|                               |   | December      31, |   |
|------------------------------------|--------|-------------------|--------|
|                               |   | 2008              |   |   | 2007 |   |
|                               |   |              |   |   |   |   |
| Land      and land improvements    |   | $                 | 21,998 |   |   | $ | 21,998 |   |
| Water      programs                |   |              | 14,274 |   |   |   | 14,274 |   |
| Buildings                          |   |              | 1,161  |   |   |   | 1,161 |   |
| Leasehold      improvements        |   |              | 570    |   |   |   | 570 |   |
| Furniture      and fixtures        |   |              | 407    |   |   |   | 334 |   |
| Machinery      and equipment       |   |              | 854    |   |   |   | 807 |   |
| Construction      in progress      |   |              | -      |   |   |   | 27 |   |
|                               |   |              | 39,264 |   |   |   | 39,171 |   |
| Less      accumulated depreciation |   |              | (3,480 | ) |   |   | (3,139 | ) |
|                               |   |              |   |   |   |   |   |   |
|                               |   | $                 | 35,784 |   |   | $ | 36,032 |   |

|                          |   | December      31, |   |
|-------------------------------|--------|-------------------|--------|
|                          |   | 2008              |   |   | 2007 |   |
|                          |   |              |   |   |   |   |
| Deferred      loan costs, net |   | $                 | 244    |   |   | $ | 320 |   |
| Prepaid      rent             |   |              | 226    |   |   |   | - |   |
| Security      deposits        |   |              | 258    |   |   |   | 250 |   |
|                          |   | $                 | 728    |   |   | $ | 570 |   |

|                               |   | December      31, |   |
|------------------------------------|--------|-------------------|--------|
|                               |   | 2008              |   |   | 2007 |   |
|                               |   |              |   |   |   |   |
| Payroll,      bonus, and benefits  |   | $                 | 170    |   |   | $  | 24 |   |
| Consulting      and legal expenses |   |              | 77     |   |   |   | 102 |   |
| Income      and other taxes        |   |              | 233    |   |   |   | 221 |   |
| Deferred      rent                 |   |              | 189    |   |   |   | 224 |   |
| Other      accrued expenses        |   |              | 106    |   |   |   | 173 |   |
|                               |   | $                 | 775    |   |   | $ | 744 |   |

|                                                                                                                                                              |   | December      31, |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|--------|
|                                                                                                                                                              |   | 2008              |   |   | 2007 |   |
| Zero      coupon secured convertible term loan due June 29,      2011.  Interest accruing at 5% per annum until June 29, 2009 and      at 6% thereafter |   | $                 | 41,276 |   |   | $ | 39,244 |   |
| Other      loans                                                                                                                                                  |   |              | 13     |   |   |   | 22 |   |
| Debt      discount                                                                                                                                                |   |              | (7,305 | ) |   |   | (9,605 | ) |
|                                                                                                                                                              |   |              | 33,984 |   |   |   | 29,661 |   |
|                                                                                                                                                              |   |              |   |   |   |   |   |   |
| Less      current portion                                                                                                                                         |   |              | 9      |   |   |   | 9 |   |
|                                                                                                                                                              |   |              |   |   |   |   |   |   |
|                                                                                                                                                              |   | $                 | 33,975 |   |   | $ | 29,652 |   |

| Year   |   | $      | 000’s |   |
|--------|--------|--------|-------------|--------|
|   |   |   |        |   |
| 2009   |   |   | 9           |   |
| 2010   |   |   | 4           |   |
| 2011   |   |   | 41,276      |   |
| 2012   |   |   | -           |   |
| 2013   |   |   | -           |   |
|   |   | $      | 41,289      |   |

| Loan      balance available for conversion: | $36.4      million |
|---------------------------------------------|--------------------|
| Expected      term:                         | 5      years       |
| Cadiz      common share price:              | $17.01             |
| Volatility:                                 | 46%                |
| Risk-free      Interest Rate:               | 5.18%              |
| Change      in control probability:         | 10%                |

|                                                                                       |   | December      31, |    |
|--------------------------------------------------------------------------------------------|--------|-------------------|---------|
|                                                                                       |   | 2008              |    |   | 2007 |   |
|                                                                                       |   |              |    |   |   |   |
| Deferred      tax assets:                                                                  |   |              |    |   |   |   |
|      Net      operating losses                                    |   | $                 | 35,303  |   |   | $ | 32,345 |   |
|      Fixed      asset basis difference                            |   |              | 7,312   |   |   |   | 7,484 |   |
|      Contributions      carryover                                 |   |              | 1       |   |   |   | 3 |   |
|      Deferred      compensation                                   |   |              | 3,603   |   |   |   | 2,150 |   |
|      Accrued      liabilities                                     |   |              | 108     |   |   |   | 198 |   |
|                                                                                       |   |              |    |   |   |   |   |   |
|           Total      deferred tax assets |   |              | 46,400  |   |   |   | 42,180 |   |
|                                                                                       |   |              |    |   |   |   |   |   |
|      Valuation      allowance for deferred tax assets             |   |              | (46,400 | ) |   |   | (42,180 | ) |
|                                                                                       |   |              |    |   |   |   |   |   |
|           Net      deferred tax asset    |   | $                 | -       |   |   | $ | - |   |

|                                                                                         |   | Amounts            |   |
|----------------------------------------------------------------------------------------------|--------|--------------------|--------|
|                                                                                         |   | (in      millions) |   |
|                                                                                         |   |               |   |
| Balance      at January 1, 2007                                                              |   | $                  | 3.3    |   |
|                                                                                         |   |               |   |   |
|      Additions      or reductions for tax positions of prior years  |   |               | -      |   |
|      Additions      or reductions for tax positions of current year |   |               | -      |   |
|      Changes      related to current year settlements               |   |               | -      |   |
|      Changes      due to expirations of the statute of limitations  |   |               | -      |   |
|                                                                                         |   |               |   |   |
| Balance      at December 31, 2007                                                            |   |               | 3.3    |   |
|                                                                                         |   |               |   |   |
|      Additions      or reductions for tax positions of prior years  |   |               | -      |   |
|      Additions      or reductions for tax positions of current year |   |               | -      |   |
|      Changes      related to current year settlements               |   |               | -      |   |
|      Changes      due to expirations of the statute of limitations  |   |               | -      |   |
|                                                                                         |   |               |   |   |
| Balance      at December 31, 2008                                                            |   | $                  | 3.3    |   |

|                                                                  |   | Year      Ended December 31, |   |
|-----------------------------------------------------------------------|--------|------------------------------|--------|
|                                                                  |   | 2008                         |   |   | 2007 |   |   | 2006 |   |
|                                                                  |   |                         |   |   |   |   |   |   |   |
| Expected      federal income tax benefit at 34%                       |   | $                            | (5,379 | ) |   | $ | (4,638 | ) |   | $ | (4,700 | ) |
| Loss      with no tax benefit provided                                |   |                         | 4,492  |   |   |   | 3,983 |   |   |   | 3,426 |   |
| State      income tax                                                 |   |                         | 6      |   |   |   | 4 |   |   |   | 6 |   |
| Stock      Options                                                    |   |                         | 86     |   |   |   | - |   |   |   | (21 | )  |
| Losses      utilized against unconsolidated subsidiary taxable income |   |                         | -      |   |   |   | - |   |   |   | - |   |
| Non-deductible      expenses and other                                |   |                         | 801    |   |   |   | 655 |   |   |   | 1,295 |   |
|                                                                  |   |                         |   |   |   |   |   |   |   |   |   |   |
|  Income tax      expense                                         |   | $                            | 6      |   |   | $ | 4 |   |   | $ | 6 |   |

| Risk      free interest rate         | 4.21%          |
|--------------------------------------|----------------|
| Expected      life                   | 9.5      years |
| Expected      volatility             | 46%            |
| Expected      dividend yield         | 0.0%           |
| Weighted      average vesting period | 0.8      years |

|                                  |   |   |    |    | Weighted- |   |   | Average     |   |   | Aggregate      |   |
|---------------------------------------|--------|--------|---------|---------|-----------|--------|--------|-------------|--------|--------|----------------|--------|
|                                  |   |   |    |    | Average   |   |   | Remaining   |   |   | Intrinsic      |   |
|                                  |   |   |    |    | Exercise  |   |   | Contractual |   |   | Value          |   |
| Options                               |   | Shares |    |    | Price     |   |   | Term        |   |   | ($000’s) |   |
|                                  |   |   |    |    |      |   |   |        |   |   |           |   |
| Outstanding      January 1, 2008      |   |   | 375,000 |    |      | $      | 13.06  |        |   |   | 7.5            |   |   | $  | 3,970 |   |
| Granted                               |   |   | 10,000  |    |      | $      | 18.99  |        |   |   | 7.3            |   |   |   | 112 |   |
| Exercised                             |   |   | -       |    |      |   | -      |        |   |   | -              |   |   |   | - |   |
| Forfeited      or expired             |   |   | (20,000 | )  |      |   | -      |        |   |   | -              |   |   |   |  (197 | ) |
| Outstanding      at December 31, 2008 |   |   | 365,000 |    |      | $      | 12.85  |        |   |   | 6.4            |   |   | $ | 3,885 |   |
| Exercisable      at December 31, 2008 |   |   | 365,000 |    |      | $      | 12.85  |        |   |   | 6.4            |   |   | $ | 3,885 |   |

|                                                                                                       |   |   |    |    | Weighted-           |   |
|------------------------------------------------------------------------------------------------------------|--------|--------|---------|---------|---------------------|--------|
|                                                                                                       |   |   |    |    | Average             |   |
|                                                                                                       |   | Amount |    |    | Exercise      Price |   |
|                                                                                                       |   |   |    |    |                |   |   |   |
| Outstanding      at December 31, 2006                                                                      |   |   | 377,339 |    |                | $      | 12.95 |   |
|  Granted                                                                                              |   |   | 7,661   |    |                | $      | 20.00 |   |
|  Expired or      canceled                                                                             |   |   | -       |    |                | $      | - |   |
|  Exercised                                                                                            |   |   | (10,000 | )  |                | $      | 13.95 |   |
|                                                                                                       |   |   |    |    |                |   |   |   |
| Outstanding      at December 31, 2007                                                                      |   |   | 375,000 |    |                | $      | 13.06 |   |
|  Granted                                                                                              |   |   | 10,000  |    |                | $      | 18.99 |   |
|  Expired or      canceled                                                                             |   |   | (20,000 | )  |                | $      | 20.00 |   |
|  Exercised                                                                                            |   |   | -       |    |                |   | - |   |
|                                                                                                       |   |   |    |    |                |   |   |   |
| Outstanding      at December 31, 2008                                                                      |   |   | 365,000 | (a)     |                | $      | 12.85 |   |
|                                                                                                       |   |   |    |    |                |   |   |   |
| Options      exercisable at December 31, 2008                                                              |   |   | 365,000 |    |                | $      | 12.85 |   |
|                                                                                                       |   |   |    |    |                |   |   |   |
| Weighted-average      years of remaining contractual life of options outstanding at December 31,      2008 |   |   | 6.4     |    |                |   |   |   |

| (a)   | Exercise      prices vary from $12.00 to $18.99, and expiration dates vary from May 2015      to December 2016. |
|-----------------|-----------------------------------------------------------------------------------------------------------------|

| -   | A      150,000 share award that vests in three equal installments on January 1,      2008, January 1, 2009 and January 1,2010. |
|---------------|--------------------------------------------------------------------------------------------------------------------------------|

| -   | A      400,000 share award that is available if the trading price of the      Company’s stock is at least $28 per share for 10 trading days within any      period of 30 consecutive trading days on or before March 12,      2009.  This award would vest in four equal installments on      January 1, 2008, January 1, 2009, January 1, 2010 and January 1,      2011. |
|---------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| -   | A      400,000 share award that is available if the trading price of the      Company’s stock is at least $35 per share for 10 trading days within any      period of 30 consecutive trading days on or before March 12,      2009.  This award would also vest in four equal installments on      January 1, 2008, January 1, 2009, January 1, 2010 and January 1,      2011. |
|---------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Risk      free interest rate         | 4.74%          |
|--------------------------------------|----------------|
| Current      stock price             | $19.74         |
| Expected      volatility             | 38%            |
| Expected      dividend yield         | 0.0%           |
| Weighted      average vesting period | 2.0 years |

|                                |   |   |    |   | Weighted-       |   |
|-------------------------------------|--------|--------|---------|--------|-----------------|--------|
|                                |   |   |    |   | Average         |   |
|                                |   |   |    |   | Grant-date      |   |
|                                |   | Shares |    |   | Fair      Value |   |
|                                |   |   |    |   | ($000’s)  |   |
|                                |   |   |    |   |            |   |
| Nonvested      at December 31, 2006 |   |   | 4,285   |   |            | $      | 82 |   |
|  Granted                       |   |   | 954,599 |   |            |   | 9,620 |   |
|  Forfeited or      canceled    |   |   | -       |   |            |   | - |   |
|  Vested                        |   |   | (4,285  | )      |            |   | (82 | ) |
|                                |   |   |    |   |            |   |   |   |
| Nonvested      at December 31, 2007 |   |   | 954,599 |   |            | $      | 9,620 |   |
|  Granted                       |   |   | 7,026   |   |            |   | 120 |   |
|  Forfeited or      canceled    |   |   | -       |   |            |   | - |   |
|  Vested                        |   |   | (54,599 | )      |            |   | (1,090 | ) |
|                                |   |   |    |   |            |   |   |   |
| Nonvested      at December 31, 2008 |   |   | 907,026 |   |            | $      | 8,650 |   |

| Year   |   | $      | 000’s |   |
|--------|--------|--------|-------------|--------|
|   |   |   |        |   |
| 2009   |   |   | 365         |   |
| 2010   |   |   | 356         |   |
| 2011   |   |   | 210         |   |
| 2012   |   |   | 138         |   |
|   |   |   |        |   |
|   |   | $      | 1,069       |   |

| (in      thousands except per share data)                              |   |               |   |
|------------------------------------------------------------------------|--------|--------------------|--------|
|                                                                   |   | Quarter      Ended |   |
|                                                                   |   | March      31,     |   |   | June      30, |   |   | September      30, |   |   | December      31, |   |
|                                                                   |   | 2008               |   |   | 2008 |   |   | 2008 |   |   | 2008 |   |
|                                                                   |   |               |   |   |   |   |   |   |   |   |   |   |
| Revenues                                                               |   | $                  | 17     |   |   | $ | 16 |   |   | $ | 247 |   |   | $ | 712 |   |
| Operating      loss                                                    |   |               | (4,008 | ) |   |   | (2,641 | ) |   |   | (2,381 | ) |   |   | (2,571 | ) |
| Net      loss applicable to common stock                               |   |               | (4,979 | ) |   |   | (3,698 | ) |   |   | (3,486 | ) |   |   | (3,746 | ) |
| Basic      and diluted   net      loss per common share |   | $                  | (0.42  | ) |   | $ | (0.31 | ) |   | $ | (0.29 | ) |   | $ | (0.30 | ) |
|                                                                   |   |
|                                                                   |   | Quarter      Ended |   |
|                                                                   |   | March      31,     |   |   | June      30, |   |   | September      30, |   |   | December      31, |   |
|                                                                   |   | 2007               |   |   | 2007 |   |   | 2007 |   |   | 2007 |   |
|                                                                   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenues                                                               |   | $                  | 352    |   |   | $ | 5 |   |   | $ | 6 |   |   | $ | 63 |   |
| Operating      loss                                                    |   |               | (1,808 | ) |   |   | (1,390 | ) |   |   | (3,399 | ) |   |   | (3,792 | ) |
| Net      loss applicable to common stock                               |   |               | (2,576 | ) |   |   | (2,158 | ) |   |   | (4,218 | ) |   |   | (4,681 | ) |
| Basic      and diluted  net      loss per common share            |   | $                  | (0.22  | ) |   | $ | (0.18 | ) |   | $ | (0.35 | ) |   | $ | (0.40 | ) |
|                                                                   |   |

|                                 |   | Investments      at Fair Value as of December 31, 2008 |   |
|--------------------------------------|--------|--------------------------------------------------------|--------|
| (in      thousands)                  |   | Level      1                                           |   |   | Level      2 |   |   | Level      3 |   |   | Total |   |
|                                 |   |                                                   |   |   |   |   |   |   |   |   |   |   |
| Certificates      of Deposit         |   | $                                                      | 4,500  |   |   | $ | - |   | $ | - |   | $ | 4,500 |   |
|                                 |   |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      investments at fair value |   | $                                                      | 4,500  |   |   | $ | - |   | $ | - |   | $ | 4,500 |   |

----

Schedule 

| For      the years ended December 31, 2008, 2007 and 2006 ($ in      thousands) |   |
|---------------------------------------------------------------------------------|--------|
|                                                                            |   |
|                                                                            |   | Balance      at |   |   | Additions      Charged to |   |   |   |   |   | Balance |   |
| Year      ended                                                                 |   | Beginning |   |   | Costs      and |   |   | Other |   |   |   |   |   | at      End |   |
| December 31, 2008                                                               |   | of      Period |   |   | Expenses |   |   | Accounts |   |   | Deductions |   |   | of      Period |   |
|                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  Tax valuation      allowance                                              |   | $ | 42,180 |   |   | $ | 4,220 |   |   | $ | - |   |   | $ | - |   |   | $ | 46,400 |   |
|                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Year      ended                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| December 31, 2007                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  Tax valuation      allowance                                              |   | $ | 34,201 |   |   | $ | 7,979 |   |   | $ | - |   |   | $ | - |   |   | $ | 42,180 |   |
|                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Year      ended                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| December 31, 2006                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  Tax valuation      allowance                                              |   | $ | 31,614 |   |   | $ | 2,587 |   |   | $ | - |   |   | $ | - |   |   | $ | 34,201 |   |
|                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| CADIZ      INC. |
|-----------------|
|            |
| By:             | /s/ Keith Brackpool |
|            | Keith      Brackpool, |
|            | Chairman      and Chief Executive Officer |
|            |   |
| Date:           | March 11,2009 |

| Name and Position                                       | Date           |
|---------------------------------------------------------|----------------|
|                                                    |           |
|  /s/ Keith Brackpool                               | March 11, 2009 |
| Keith      Brackpool, Chairman and                      |           |
| Chief      Executive Officer                            |           |
|  (Principal      Executive Officer)                |           |
|                                                    |           |
| /s/ Timothy J. Shaheen                                  | March 11, 2009 |
| Timothy      J. Shaheen, Chief Financial Officer        |           |
|  (Principal      Financial and Accounting Officer) |           |
|                                                    |           |
|  /s/ Stephen J. Duffy                              | March 11, 2009 |
| Stephen      J. Duffy, Director                         |           |
|                                                    |           |
|  /s/ Geoffrey Grant                                | March 11, 2009 |
| Geoffrey      Grant, Director                           |           |
|                                                    |           |
|  /s/ Winston H. Hickox                             | March 11, 2009 |
| Winston      H. Hickox, Director                        |           |
|                                                    |           |
|  /s/ Murray H.    Hutchison                        | March 11, 2009 |
| Murray      H. Hutchison, Director                      |           |
|                                                    |           |
|  /s/ Raymond J. Pacini                             | March 11, 2009 |
| Raymond      J. Pacini, Director                        |           |
|                                                    |           |
|  /s/ Stephen E.Courter                             | March 11, 2009 |
| Stephen      E. Courter, Director                       |           |